The Web-hosting and related Web-based-services market is becoming much more dynamic and interesting as the interest in e-commerce, online marketing, and search increases, according to "Shifting Web-Hosting and Services Market Dynamics, Part 1," a new report by Yankee Group. SMBs, formerly users of very basic hosting services with limited business benefits, are moving to providers that can partner with them to develop a professional site with more interactive, collaborative, and dynamic Web content.
The study predicts the U.S. online advertising-and-marketing market will grow at a 49 percent CAGR, rising from $1.3 billion in 2005 to nearly $9.3 billion in 2010. "Much of this market is money that's going to Google," says Sanjeev Aggarwal, SMB strategies senior analyst and the report's author. "A lot of SMBs are seeing the power of the sponsored search model, but don't know how to do it effectively. They need a more full-service host that can help them" with aspects like Web-design and search-engine optimization.
Another area where SMBs are seeking to expand their reach is multiplatform content, delivering Web-site access and additional content (such as podcasts) through mobile devices, as well as traditional browsers. "There is increased interest in accessing the Internet via mobile devices," the report states. "In the age of ubiquitous connectivity, all companies should develop Web sites that target the PC and a mobile device such as a cell phone or smart phone/PDA." Full-service Web-hosting providers can gain customer loyalty by supporting and aiding the development of sites that take multiple devices into account.
All segments, from very small businesses (two to 19 employees) to 999-employee midmarket companies, stated they would increase spending on Web hosting in 2006, with the largest net increases seen among very small businesses (8.7 percent) and 100- to 499-employee medium businesses (6.1 percent). Very small businesses expect to increase their site development spending by 13 percent, and online marketing by 19.1 percent, in 2006.
Price is the top selection criterion cited by SMBs choosing a Web host, but "price has to be taken in context," Aggarwal says. "When you offer a $2 hosting service, customers aren't expecting a lot of support and service, and won't choose that provider if it doesn't meet their needs."

After price, the leading criteria were good word of mouth and bundled hosting with Internet access. The latter is a clear opportunity for telecommunications and cable providers to expand their service offerings and customer base. Aggarwal expects telecoms to act on this in the short term. "Dynamic change is happening on the telecom side," he says, noting that large telecom and cable TV players want to get more aggressive in the SMB segment and introduce new and more competitive offerings.
Word of mouth and reputation in general will be affected by consolidation in the short term as providers seek to leverage partnerships and acquisitions to gain market share. According to Aggarwal, regional Web-services companies to consider mergers or selling out to larger national vendors. "Non-full service companies will seek to acquire the capabilities of others in order to create a more complete offering."
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